“Everybody thinks high gas prices hurt sport utility sales,” said Robert A. Lutz, the vice chairman of G.M., in an interview last month. “In fact they don’t.”
If you are like me, by this time you are getting tired of bailing out Corporations that have failed due to their own incompetence. Now we are being forced to bail out another industry that doesn’t seem to know how to run it’s business properly. Taxpayers will take the hit for the auto industry, one that has ignored all projections and continued to build gas guzzling muscle cars like the Hummer. The handwriting has been on the wall for as long as you or I can remember, and yet the auto industry executives continued to ignore trends. So the question is, due to it’s total failure, should we bail out GM? And after that why not bail out Circuit City, Starbucks, and don’t forget about Linens and Things.
WASHINGTON – Struggling to keep alive a government bailout of the troubled auto industry, key supporters offered concessions Friday — including reducing its $25 billion size. The White House came out firmly against a Democratic plan to carve it out of a $700 billion rescue package for financial companies.
The measure gained important ground among Republicans on Capitol Hill, where at least a dozen to 15 GOP votes in the Senate will be needed to prevent opponents from blocking it in the Senate. The focal vote on that could occur as early as next Wednesday.
Sen. Kit Bond of Missouri became the second Republican to publicly voice support for the idea, joining Sen. George Voinovich of Ohio. Both states have major auto plants. Several other GOP senators signaled they might accept a rescue for Detroit’s Big Three if it contained strict conditions for the beleaguered companies, including management and salary changes, concessions from their powerful unions, and a commitment to making more fuel-efficient vehicles. Alan Reuther, the United Auto Workers union’s legislative director, said one option under consideration was a smaller, more targeted amount of funding “that would get the companies through to March.” He said the union was “open to discussing various options like that. There’s a need for immediate action.”
General Motors Corp., Ford Motor Co., and Chrysler LLC have been clamoring for such aid as their industry is battered by the economic meltdown, which has choked off sales and frozen credit. GM has said it might not survive through year’s end without a government lifeline.
$30 Million dollar portion of Bailout already earmarked for bonuses for 50 executives.
#29, Mustard,
You’re never going to get that one by Lyin’ Mike. He HATES those little fuel-efficient fuckers.
Then phuc Lyin’ Mike. I am concerned about the nation as a whole, not just one little useless piece of Jimy Heel property.
If the Big Three go down the tubes, not even Obama, and all Obama’s horses and all Obama’s men will be able to undo the economic armageddon that will follow.
Exactly !!! While it is very true this is not the road we want to be going down, the eight years of “Bush” and six previous years of Republican Congress de-regulation have all helped to get us here.
#33, madman
Good comment. You brought up some very pertinent facts that all the “not me” comments don’t care about. Main Street, and the people who live there. The repercussions of seeing the domestic auto industry die will, as Mr. Mustard says, … not even Obama, and all Obama’s horses and all Obama’s men will be able to undo the economic armageddon that will follow.
@23 : “I would attach conditions such as the Government getting a portion of ownership, the unions (workers) get some seats on the Board, keep manufacturing in America, fuel efficiency become a prime concern, etc,.”
Conditions, YES. Unions on Board, Hell NO.
My version of conditions under which Govt. should save their asses (and asses of UAW members);
1) Fire complete management (top to bottom), without benefits, ending packages, bonuses, etc. Ban hiring by auto-industry of any management people previously working in auto-industry for next 10 yrs. Give temporary oversight to engineers and scientist from Nat.Labs and entice new management hires from abroad.
2) No rescue money if UAW doesn’t make at least 10 yr. long new contract, starting NOW in which they are compensated equally to the profitable (foreign run) auto-industry in the USA. As I understand that means about 36% pay cut and slashing of most benefits.
3) Together with the rescue packages Govt. passes new auto fuel efficiency and safety standards that are appropriate for the future (ex. average fuel economy of 40 mpg) that apply exactly the same to all vehicles (no more SUV loopholes which are one of the causes of the insane marketing and trouble we have now).
Than, save the industry and UAW from the mess they made themselves.
Bailouts benefit car executives retirement funds and it is a disincentive to innovate.
If GM is in such a hole now it obviously is not going to innovate itself out of it in 3-6 months. They had 8 years to see the trends towards smaller, fuel efficient and reliable cars but ignored the obvious signs.
If these fuel efficient cars are what Americans want, then why are Toyota and Honda building bigger cars with bigger engines, and making brand new trucks and SUVs? Even the Corolla is bigger than before.
You keep thinking that, I know it makes you feel better.
I don’t know a single person who thinks GM should get a bailout, loan or $1 in charity from the U.S. government.
And yet, both parties are now determined to make this happen. The temptation to “do something”, even if it makes no sense, is irresistible.
GM has spent the last 8 years lobbying – successfully – against desperately needed increases in gas mileage. They’ve damaged and endangered the entire planet.
As far as I’m concerned GM should be pushed over a cliff.
#33 – what you’re talking about is extortion.
By the way GM has flex fuel vehicles across its lineup and hybrids for some of its biggest cars.
lET ME SAY THIS…
I havent seen a MAJOR corp, upgrade/update ITSELF, with its OWN money, sense the IRON MILLS DIED..
All Major corps WANT THE GOV to bail them out, so they can TRY and change..
Auto industry has been TRYING to change for over 20 years…AND HASNT DONE IT, with ALL the money they have made in the PAST..
What makes you think…they WE/the gov/… WONT be paying for it one way or another.. NO MATTER WHAT..
Average Profits PER vehicle is about $10,000. TELL me they couldnt FIX something in the past 20 years.
I’d go with massive tax cuts. Clearly the high tax environment no longer works. Either the government starves or industry does. Since government produces nothing, it has less of a negative impact on the economy. No bailout is needed. With lower taxes, prices drop and productivity rises. They’ll need to raise taxes to pay for a bailout. Then there’s the chance that the bailout won’t work, like the Wall St. bailout isn’t working. Lots of unintended consequences with these bailouts. Government picking winners doesn’t work. You can’t control profits, all you can control are costs. We might as well ditch real estate taxes also to slow down real estate foreclosures.
Bail out 700+bln and stock market is still going down..
#24 Fusion:
“We have already lost our steel manufacturing sector, electronics, and textile industries.”
Yeah, and now we have access to a dizzying array of very cheap manufactured, electronic, and textile goods. Please can we go back to the days of one color television per city block and mom in the kitchen darning socks? No way.
Until Americans are willing and able to charge a competitive price for their labor, Americans won’t make this stuff – it’ll be too expensive, and no one will buy it, including other Americans.
Why do so many people act as if the assets in Detroit were worthless? Someone else will buy them, at a discount, and probably start producing cars people actually want. I’d like to see Tata move in to Michigan.
#48-really? you would like to see Tata move into Michigan? Have you driven a Tata motor car? I highly doubt that Tata has enough money to buy more than a couple assembly plants in America, let alone make them safe enough for the roads in America. They are making cars in China and India for a reason: standards for a car are far less than here in America. Remember the 5000 car Tata made? couldn’t even be sold in America due to saftey restrictions.
One thing you must all know: 2 years ago the UAW signed an agreement WITH MANAGEMENT that was hailed all over the media as a landmark deal for the autos (they bargained basically the same deal with GM, Ford, and Chrysler). In this deal, all healthcare obligations for retirees was (and still will) go to the responsibility of the UAW. All healthcare in 2010 for the retirees is going to the UAW and no longer will be the responsibility of the corporations. Also in these deals was a negotiated cut in wages for new hires into these companies. These wages were mostly cut in half and most (nearly all) benefits were cut for the new hires. But you also must realize that in the past year, the numbers of people in the autos have shrunk considerably. Those people either became retirees (gonna get pushed off to UAW) or cut all ties with the company. We have been restructuring, but I will agree not nearly fast enough.
To top all this off let us think about just the business of auto selling. Last month GM sales were down almost 50% from last year. Even the mighty Toyota has had sales slide over 25% from the previous year even with 0% interest, which historically they have NEVER done. Pick a company, any company, and cut their sales in HALF from last year, and tell me they would survive that for long. If they did, there would be huge alarm bells going off. GMAC (majority owned by a competitor, Chrysler/Cerberus) stopped leasing vehicles and decided not to loan to people with lower than a 700 credit score. Other banks would not loan unless you came to the table with a fistful of cash (not that its a bad thing, but that definetly affects a decision to buy a 15-40,000 vehicle for most people). So you add all these factors up, along with 3-4 dollar gas for the past year, and you see that the deck has been stacked against all automakers, not just GM.
I just wonder if a car guy instead of a Goldman Sachs guy was running the treasury that this debate would be different? Hope this all helps the discussion….Thanks!
Yeah I’m sure the automakers planned to go bust, or near bust, in order to drop their pension obligations. A government bailout plan (dictated by the industry) would probably include unloading their pension debt onto the taxpayers. Then the corporate executives can get back to giving themselves all billion dollar raises, again. GM already has been bailed out, when they bought Hummer, and got the US Army to use them in place of cheaper Jeep models. No amount of metal is stopping those IEDs from killing their passengers. And running soldiers around in them is just asking the enemy to blast away at them. It’s all kamikaze warfare in disguise, to justify the need for these expensive rolling deathtraps. But I guess not enough soldiers have died this year, to keep GM afloat with Army-Hummer sales. These war profiteers should go under. Let some more efficient start ups take their place. But I’m sure it will never happen. The big three American automakers will be spared the pain of total failure. They’ve got just enough left over money to show Congress such a good time, to go to bat for them.
47,
uNTIL WE ARE ABLE TO charge A REASONABLE wage for the HIGH wage earners…Prices wont go down.
High wage earners in the USA, get 10-100 times the wages of other countries..
“continued to build gas guzzling muscle cars like the Hummer”
The hummer is not a muscle car, it’s a FAT car.
About the issue, I’m not sure. The feds allowing Lehman to fold is widely thought to have increased problems in the market.
I believe in free markets, as opposed to corporate welfare which is usually called free markets.
Right now…. what would be the psychological impact of GM laying off HUGE numbers of workers just before Christmas?
We are in a very bad place right now. Governmental response to the Great Depression is a story about inadequate action compounding the problem. Now isn’t the time to finally discover pure capitalism.
Okay, I figured it out.
Correct answer: We can print you a bunch of money, no problem! But you have to accept higher CAFE standards. And we’re sending someone in to rewrite the union contracts. And no executive bonuses this year.
#53, chris,
That all sounds very pretty and will probably get you a bunch of “ya, good idea” around your local drinking establishment, but it won’t work.
Read #49, madtruckman’s post again. Oopps, what? You didn’t read it the first time? What he wrote is true.
#50, Glenn,
Bullshit. The original HMMWV was not intended as a combat vehicle but it ended up being one. All HMMWVs being produced today are fitted with armor. They won’t stop rocket fire but they will stop most rifle fire. If you want to stop the rockets, you need a tank. Instead of blaming the manufacture, why not blame the person who put the troops in harm’s way?
I’m from Mich and, yeah, I know the car companies have been run like shit, but …
The way the auto industry is tied together with suppliers, etc means that if one company fails. there will be a huge ripple effect.
So, GM goes under and files bankruptcy. Chances are VERY likely Ford and Chrysler will be fast on their heels, as well as all the little machine shops, Restaurants, Gas Stations, bars, truckers, etc etc that all depend upon them.
Six Million more unemployed? And with no chances for another job to recover? Yeah, that will do wonders for America
AC
Are flex fuels the beta max of clean transportation technologies?
The bailout is necessary.
#43 – Lyin’ Mike
>>By the way GM has flex fuel vehicles across
>>its lineup
Flex fuel isn’t going to cut the mustard, I’m afraid. Federal law limits the amount of ethanol in flex fuel to 10% (ie 90% gasoline); relatively few gas stations carry it, and it’s yet another subsidy for factory farms that produce corn.
A Humper or Naggravator that runs on 90% gasoline STILL uses more gasoline than a Prius.
“Our policies with dealers were shoddy. What we were doing was a blatant violation of our own precepts of a free enterprise.” John DeLorean, ON A CLEAR DAY YOU CAN SEE GENERAL MOTORS
We are now looking at not only bailing out GM, but bailing out all the dealers. The dealer up the street selling a better product now gets to chip in to make the GM dealer more competitive because his products are less competitive in the market. All you will end up with are more uncompetitive products as a result of this sort of thing and at a higher cost to the consumer.
Why do people still believe in perpetual motion machines and sustaining Ponzi schemes? If GM’s liabilities, including pension benefits, are overwhelming its revenues, the pensioners are SOL ultimately no matter what.
Once again, a Ch 11 reorg is not a liquidation–the companies will continue to operate and the ecosystem will not be starved. Nearly all of the airlines have gone bankrupt over the years and the air transport ecosystem has come through largely unscathed.
A good chunk of the reduction in sales, incidentally, is due to the automakers deliberately getting out of the fleet sales business, which pumped up unit volumes but at low margins. That’s a business decision, not an act of God.
GM won’t be healthy until it defaults on its debt and emerges from BK.
However, with these bailouts our descent into left-wing fascism is nearly complete.
” GM is one of the most prominent issuers in the corporate bond universe, and GM CDS are the second most included named in synthetic collateralized debt obligations (CDOs), behind Ford, as disclosed in several Fitch analyses of the CDS market. Fitch currently rates GM and GMAC at ‘BBB’ with a Negative Outlook.
The full report ‘General Motors as a Case Study – CDS versus Bond Liquidity’ is available on the Fitch Ratings web site at http://www.fitchcdx.com.”
http://findarticles.com/p/articles/mi_m0EIN/is_2005_Feb_18/ai_n9547898
Negative is negative.
“If government intervention trips payments on the company’s CDS, or forces an unexpected overhaul of GM’s debt, however, it could create new turmoil in credit markets.”
http://www.tradingmarkets.com/.site/news/Stock%20News/2026115/
Unintended consequences are what they will be. If the debt is bad, chances are good the bet will be bad. The government might throw the dice on a GM bailout. That doesn’t mean the debt can improve. It means GM gets to go deeper into the hole. Naturally government is ready to help dig the hole deeper. The trouble at GM is debt, so more debt on unprofitable operations will not solve the problem. If GM announced they were dumping all this debt on the government, people would be outraged. Instead the government is announcing they are dumping more cash into GM, when investors have said we are getting out while the getting is good. The stock is around 3 a share, which says a lot. People aren’t buying at 3 or at least not many are buying. It’s a total loss. At least that’s how it looks. Fascism isn’t profitable either.
Earth to US voters! It doesn’t count what _YOU_ want. Didn’t the 700 billion bailout prove that to you? YOU don’t own the government. You’re just presented with that ILLUSION by the OWNED major party candidates you’re offered every two years.
“None are more hopelessly enslaved than those who falsely believe they are free.” – Johann Wolfgang von Goethe
Their job package is a lot better than my job package.
The entire company needs a major restructuring. Handing them cash as is is a waste of money.
Parts made in Mexico, Indonesia, Taiwan, ALL shipped to the USA, and put together by USA workers(?), with a PROFIT MARGIN that says MADE IN THE USA, at a USA PRICE..
If we can FORK our manufacturing and Personnel from other countries to do the WORK, WHY cant the CEO, board members get WAGES like those in OTHER COUNTRIES..
How many MILLIONS per year could they have saved?